It’s now easier than ever been to found a business. The cost of starting a simple online venture is low. This has opened up the possibility for many to become entrepreneurs, and the availability of capital also enables many new ground-breaking ideas to raise the needed funds at the early stages.
However, the cost to scale a business and to acquire the latest tech is high. This has somehow led to the belief that the first thing to do, when starting a business, is to raise capital. For many new entrepreneurs this has become the first concern, and in some cases there is even an expectation that any great idea deserves to be funded.
As many serial entrepreneurs can testify, ideas never develop according to plan. They change numerous times, get tested and adapted to customers’ needs before becoming great businesses.
New entrepreneurs often wrongly assume that:
- A great idea will certainly become a great business once customers become aware of it (whereas markets are much more complex, and of course, implementation is everything)
- You cannot create traction with customers without having the latest technology to offer (instead, your competitive advantage should go beyond just the technology – do not spend too much on product development before knowing what your customers want)
- A startup is better than a normal business (instead, fast growth will eat away your profits – it is better to first establish whether your product is scalable and whether a fast growth is necessary for your specific type of business, it depends on which market you are competing in)
The emergence of many new venture capital firms, seed funding companies and accelerators, as well as prominent business angels, has also led to the belief that getting funded is easy and that it is just a matter of following a certain process. Instead, getting creative is also part of the process: sure, there are set ways to approach investors and it is now easier than ever, but just like marketing your products to new customers involves creating a strategy, getting the attention of investors can involve creating your own unique strategy.
Raising capital at seed stage differs from the traditional way of raising capital for later stage startups or SMEs, because: